Saturday, April 20, 2019

Monday Morning Chartology


The Morning Call

4/22/19

I am taking the weekend off.  Here is Monday morning’s notes.

The Market
         
    Technical

            Even though the S&P was up on Thursday, it still failed to trade back above the lower boundary of its very short term uptrend, voiding that trend (the Dow remained above the lower boundary of its very short term uptrend).  The good news in that pin action is that it, at least, closed last Friday’s gap up open; though that big April 1st gap up open is still hanging out there, waiting to be filled (the Dow has the same problem).  However, as you can see, closing that gap will do almost no technical damage to the S&P chart and certainly wouldn’t raise concerns about anything other than a minor retreat.



            Technically speaking, last week, the long bond performed as close to perfect as possible, i.e. it closed March’s big gap up open, traded down to the lower boundary of its very short term uptrend and then bounced hard on huge volume.  That clearly is a challenge to the stronger growth/higher interest rate narrative.



            On Thursday, the dollar succeeded in trading above its prior high---which you will recall, in my opinion, was the only real technical negative in its chart, minor as it may have been.  The only problem is that it did so on a gap up open.  And you know what that means.  It will likely be closed. 



            GLD’s chart is breaking down.  On Thursday, the 100 DMA reverted to resistance and the neck line of the head shoulders pattern confirmed its break.  The downside price objective is now seven points lower.



            The VIX had a rough week, with its chart remaining quite negative (below both MA’s and in a very short term downtrend).  As I noted last week, normally, that would suggest further upside for stocks.  However, on Wednesday, it traded down to the lower boundary of its short term trading range and bounced.  Then Thursday, it headed down again seemingly preparing for another challenge of that lower boundary---which it may well do.  But as I also noted last week, the VIX is near historic lows; so, any further decline will put it even closer to major, major support and suggests stock prices are getting stretched to the upside.  That doesn’t mean that they can’t eventually go higher, even much higher; but it likely means that some consolidation in which the VIX returns to more normal levels before stocks experience any meaningful move up.



            Bottom line: taking the pin action in the S&P and the VIX together, it seems reasonable to me to see some very short term weakness in stock prices.  However, I still believe that the S&P will challenge its all-time high. 

            I am back to being a bit confused by the price action of the other indicators that I follow. The dollar is likely up because investors believe that the US economy will gain strength---that or they at looking to the US as a safe haven.  The long bond has been hinting at the stronger economy/higher interest rate narrative; but the chart needs to break in order to confirm that, at least, in my mind.  Friday’s advance on huge volume suggests otherwise.  Gold usually goes down on a strong dollar and higher interest rates; but bond investors don’t seem to have bought into that scenario.

            Last Thursday in the charts.

    Fundamental

       Headlines

The dataflow last week was neutral though the primary indicators were negative (March housing starts/permits [-], industrial production [-], retail sales [+], leading economic indicators [0]).  I rate the week a negative.  Score: in the last 184 weeks, fifty-nine positive, eighty-four and forty-one neutral.
                                  
This is the third consecutive week in which the overall data was neutral and that supports the notion that the numbers have ceased declining.  Nevertheless, a week of negative primary indicators can’t be ignored.  I still believe that the stats will improve as we go into the second quarter.  Indeed, I want the data to improve.  That is in my forecast.  However, this week’s results don’t help the cause.

            The stats from the rest of world were slightly negative despite the current upbeat trend in Chinese data.  As I noted last week, my skepticism notwithstanding, most investors are accepting these numbers at face value; so, it would be foolish of me not to assume the odds are that I am wrong.  That said, given how large trade is as a component of Chinese GDP, at some point, all this positive Chinese economic activity has to show up in some other country’s numbers.  So far, it hasn’t.

Default problems in China.

Growth problems in Europe.

Importantly from a Market standpoint, this dataflow has yet to comport with the increasingly cited narrative of a global economic recovery and higher interest rates.  That doesn’t mean that it won’t eventually; but right now, the burden of proof is on the optimists.

            The trade news last week wasn’t all that great.  While it appears that there will be a US/China trade agreement, it has apparently been watered down sufficiently to not really accomplish much with respect to correcting the inequities in Chinese industrial policy and IP theft.  That said, we don’t know the provisions; so, I withhold judgment. 

On another front, the US and EU are preparing to negotiate new terms to the current trade agreement.  As you might expect where Trump is involved, the preamble was an exchange of threats---though given NAFTA and the current outline of the US/China trade agreement, that probably doesn’t mean much.         
           
    News on Stocks in Our Portfolios

Genuine Parts (NYSE:GPC): Q1 Non-GAAP EPS of $1.28 misses by $0.03; GAAP EPS of $1.09.
Revenue of $4.74B (+3.3% Y/Y) misses by $50M.

Schlumberger (NYSE:SLB): Q1 Non-GAAP EPS of $0.30 in-line; GAAP EPS of $0.30.
Revenue of $7.88B (+0.6% Y/Y) beats by $60M.

Schlumberger (NYSE:SLB) declares $0.50/share quarterly dividend, in line with previous.
           

Economics

   This Week’s Data

      US

     International

    Other

            Cass Freight Shipment Index declines for fourth month in a row.
                       
            The Japanification of the US economy.

What I am reading today

           

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Wednesday, April 17, 2019

The Morning Call--I can't argue with the dataflow


The Morning Call

4/18/19

The Market
         
    Technical

The Averages (DJIA 26449, S&P 2900) drifted lower on higher volume and mixed breadth.  While the pin action was hardly attention grabbing, it did result in a confusing outcome: (1) the S&P closed below the lower boundary of its very short term uptrend; if it remains there through the close today, it will void that trend and (2) the Dow ended above its prior high for a second day, reestablishing a very short term uptrend.  I am not going to read too much into this until there is some clarifying follow through.  For now, I continue to believe that the indices will almost surely hold their momentum long enough to challenge their all-time highs.

But, there are two potential negatives that I discussed in last weekend’s Closing Bell: (1) both indices made a second gap up open on Friday.  Meaning they now have two gap up opens exerting restrain on the upside, (2) while the recent drawdown in the VIX would normally be a plus for stocks, it has now reached a level that puts it near an all-time low.  Historically, this has been a signal that stock prices are getting stretched.

The long bond was up fractionally, ending above (but near) near the lower boundary of its very short term uptrend and above MA’s. 

The dollar was down two cents.   So, it remains in a solid uptrend.  The only thing I can see wrong with this chart is that it needs to trade meaningfully above its prior high.

GLD (120) was down slightly, finishing below its 100 DMA/triple bottom for a second day.  If it remains there through the close today, the 100 DMA will revert to resistance and the downside objective established by it head and shoulders will be roughly the lower boundary of its short term uptrend (117).  Clearly, this chart is deteriorating.

Bottom line: after one day of trading in sync, the Averages are back out of it---though not enough to raise questions about direction (up).  And the other Markets that I follow continue to reflect an emerging narrative pointing to improving economic growth and higher interest rates.  It is still a bit early to feel comfortable with this scenario; but the signs are there.

            Corrections and declines.

            Wednesday in the charts.

    Fundamental

       Headlines

            Yesterday’s US data was slightly upbeat: weekly mortgage applications down while purchase applications improved fractionally, February wholesale inventories were below expectations but sales increased, and the February trade deficit was less than anticipated.

            The Fed released its latest Beige Book survey.  It read as one might have expected, providing anecdotal evidence for being ‘patient’.

            And speaking of anecdotal evidence:

            BofA’s Fund Manager Survey show institutions positioned for secular stagnation.

            Retailers have already shuttered more stores than they did in all of 2018.

            Soybean exports plunge.

            Architecture billings index declines in March.

            Overseas, the stats were mixed with China once again providing the bulk of the positive numbers: March Chinese industrial production and retail sales were well ahead of forecasts while March fixed asset investments and Q1 GDP were in line; February Japanese industrial production was one half estimates but capacity utilization was much better; the February EU trade surplus was less than expected while CPI was in line: both the headline and core March UK PPI were below consensus.

            German economy headed for worse growth in six years.

            Here is one guy who shares my doubts about the Chinese economic data.

The latest ‘progress’ report on US/China trade talks.

            A better approach to China trade.
           
            Bottom line: the improving economy narrative received more good news yesterday as earnings reports continued to come in above estimates and the Chinese dataflow remains every optimist’s wet dream.  The only question is, if this is all real, at what point does it force the Fed to re-re-think its interest rate/QT policy? 

            This is a clear explanation of the problems wrought by financial institutions and why they are a tax on the economy. (must read)

            No safe place to hide.

    News on Stocks in Our Portfolios
 
            Sherwin Williams (NYSE:SHW) declares $1.13/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

     International

    Other

            Will China capture the main benefit from its Belt and Road policy?

            Will China sustain its reported first quarter rebound?

            Update on Brexit.
           
What I am reading today

            What ‘freedom of the press’ means.

                Activity detected at North Korean nuclear site.

                A formula for investing disaster.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




The Morning Call--Everything China


The Morning Call

4/17/19

The Market
         
    Technical

The Averages (DJIA 26452, S&P 2907) inched higher on improved volume and breadth.  The S&P’s pin action remains almost perfect.  The Dow ended above its prior high; if it remains there through the close today, it will reestablish a very short term uptrend.   I continue to believe that they will almost surely hold their momentum long enough to challenge their all-time highs.

But, there are two potential negatives that I discussed in last weekend’s Closing Bell: (1) both indices made a second gap up open on Friday.  Meaning they now have two gap up opens exerting restrain on the upside, (2) while the recent drawdown in the VIX would normally be a plus for stocks, it has now reached a level that puts it near an all-time low.  Historically, this has been a signal that stock prices are getting stretched.

The long bond fell 5/8 % on volume, closing near the lower boundary of its very short term uptrend and above MA’s. 

The dollar was up ¼%.  So, it remains in a solid uptrend.  The only thing I can see wrong with this chart is that it needs to trade meaningfully above its prior high.

GLD was hammered again (down 1%), falling below its 100 DMA/triple bottom.  If it remains there through the close on Thursday, the 100 DMA will revert to resistance and the downside objective established by it head and shoulders will be roughly the lower boundary of its short term uptrend.  Clearly, this chart is deteriorating.

Bottom line: after a period of inconsistent pin action among the Markets, the emerging narrative across all of them appears to be improving economic growth and higher interest rates.  It is a bit early to feel comfortable with this scenario; but the signs are there.

            Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic stats were mixed: month to date retail chain store sales were upbeat, March industrial production disappointed and the April housing market index was in line.
            Overseas, the data was positive: February EU construction spending and economic sentiment were above estimates while the February UK unemployment rate was in line.

            Bottom line: as I noted above, it seems like the investing world is starting to focus on the consensus view that the worst, economically speaking, is behind us.  The major driving forces are:

(1) an earnings season that is unfolding much more positively than anticipated,

(2) all things China:

[a] the huge liquidity infusion by the Bank of China,

[b] the continuing flow of major surprises in its economic releases.  As you know, I have been skeptical about the veracity of these numbers largely because it doesn’t seem to be reflected in the data from the rest of the world {see below}.  So, I am either dead wrong or everyone else wants to believe.  At the moment, I have to assume the former.

[c] the making of a trade deal with the US.  The more details we get, the more I believe that it will be a disappointment for secular growth.  Not that it will be a negative; just that it won’t rectify the principal Chinese unfair trading practices---so, as I said yesterday, it seems like nothing much will really change from the period before we went through all this agony.  That said, if the recent tariffs imposed by both parties are eliminated and China resumes its agricultural and energy imports from the US, then clearly that will be a cyclical positive.
                
            Update on big four indicators.
           

    News on Stocks in Our Portfolios
 
            Qualcomm and Apple settle litigation (we own both).

            PepsiCo (NASDAQ:PEP): Q1 Non-GAAP EPS of $0.97 beats by $0.04; GAAP EPS of $1.00.
Revenue of $12.88B (+2.5% Y/Y) beats by $200M.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew faster than in the prior week.

            March industrial production declined 0.1% versus estimates of +0.2%.

            The April housing market index came in at 63, in line.

                        Weekly mortgage applications declined 3.5% while purchase applications were up 0.9%.

            The February trade deficit was $49.4 billion versus consensus of $53.5 billion.

     International

            March Chinese fixed asset investments were up 6.3%, in line; industrial production was up 8.5% versus expectations of +5.9%; retail sales +8.7% versus +8.4%; Q1 GDP +1.4%, in line.

            February Japanese industrial production rose 0.7% versus forecasts of up 1.4% while capacity utilization increased 1.0% versus -0.4%.

            February EU trade balance was +15.5 billion versus projections of +E17.2 billion; CPI was +1.0%, in line.

            March UK PPI was flat versus consensus of +0.1%; core PPI was +0.2% versus +0.3%.

    Other
              
               The Fed needs reforming.

               Here is apparently what is going inside the Fed.  If anyone believes this pedantic bulls**t has a snowball’s chance in hell of working, I have a bridge for sale.

               Will rising oil prices lead to higher inflation?
              
               On line lenders preparing for a recession.

               Where inflation is hiding.

               Container board volumes decline markedly.

               Pentagon bookkeeping is a disaster.

               What bothers Greenspan.

What I am reading today

           
            The problem with making tax returns public.

                The will to survive.


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Tuesday, April 16, 2019

The Morning Call--US waters down China trade deal


The Morning Call

4/16/19

The Market
         
    Technical

The Averages (DJIA 26384, S&P 2905) drifted modestly lower on light volume and negative breadth.  The S&P’s pin action remains almost perfect.  The Dow slightly less so.   I continue to believe that they will almost surely hold their momentum long enough to challenge their all-time highs.

But, there are two potential negatives that I discussed in last weekend’s Closing Bell: (1) both indices made a second gap up open on Friday.  Meaning they now have two gap up opens exerting restrain on the upside, (2) while the recent drawdown in the VIX would normally be a plus for stocks, it has now reached a level that puts it near an all-time low.  Historically, this has been a signal that stock prices are getting stretched.

The long bond was up ¼ % after closing the gap up open of four Friday’s ago and removing the magnetic pull of that gap.  Meanwhile, it remains in a very short term uptrend and above MA’s. 

The dollar declined one cent.  So, it remains in a solid uptrend.  The only thing I can see wrong with this chart is that it needs to trade meaningfully above its prior high.

GLD was off again and is nearing its 100 DMA/triple bottom---the lower boundary of the trading range whose the upper boundary is its very short term downtrend.  A break below the 100 DMA/triple bottom (which is also the neckline of the developing head and shoulders formation) would mark a sharp deterioration in the GLD chart.  It suggests that investors would be betting on a stronger economy/higher rates.

Bottom line: the upward momentum in the indices continues which I believe will take them to their prior all-time highs.  Though I am not sure that they can mount a successful challenge until those gaps are closed and the optimism reflected in the VIX dissipates some. 

            Monday in the charts.

    Fundamental

       Headlines

            One datapoint yesterday: the April NY Fed manufacturing index was above expectations.  Nothing from overseas.

            The main headlines related to trade:

            US waters down China trade deal.

                        US/EU start their trade negotiations.

                        Trump may be undercutting his own deals.

            Bottom line: it appears that the US/China trade negotiations are close enough to concluding that the administration can no longer blow smoke up the electorate’s skirt about how wonderful the deal is going to be.  To be sure, if the US ceded Hawaii to China, Trump et al would find a way to make it look like the greatest thing since sliced bread. Still, we don’t know all the details so there is no final judgment.  That said, the above summary of current state of the talks raises the question of whether much has been accomplished.

            Update on Q1 earnings season.

    News on Stocks in Our Portfolios
 
Johnson & Johnson (NYSE:JNJ): Q1 Non-GAAP EPS of $2.10 beats by $0.06; GAAP EPS of $1.39.
Revenue of $20.02B (flat Y/Y) beats by $470M.

BlackRock (NYSE:BLK): Q1 GAAP EPS of $6.61 beats by $0.48.
Revenue of $3.35B (-6.4% Y/Y) beats by $50M.
           
Economics

   This Week’s Data

      US

     International

            The February UK unemployment rate was 3.9%, in line.

            February EU construction output rose 5.2% versus estimates of up 2.0%.

            February EU economic sentiment came in at 4.5 versus forecasts of 1.2.

    Other

            Credibility problems inside the ECB.

            Improved outlook for global economy.

            But don’t forget about Italy.

            Moore and Cain could fix the Fed.

            IMF on the economic impact of Brexit.

Chinese interest rates on the rise---maybe all those upbeat stats were for real.

What I am reading today

            Why we never all be happy again.

            How to avoid the estate tax and die happily ever after.

                Redemption.
            https://www.pragcap.com/redemption-2/         

                Crypto currencies bedeviled by algos.

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